(Ecofin Agency) - According to the OECD, in South Africa, MSMEs are underfunded despite facing several challenges. To improve the sector and foster its growth, the government plans to implement new measures. 

The South African government will provide more than US$77 million in funding to entrepreneurs in 2023, President Cyril Ramaphosa (photo) announced in his State of the Nation address released Thursday, February 9.

More than 90,000 entrepreneurs are expected to benefit from this funding provided through the South African Small Business Financing Agency (SEFA). In addition, President Ramaphosa announced that the government is working with the SA SME Fund to establish a ZAR10 billion (about US$555 million) fund to support the growth of SMEs and informal businesses.

"Government is looking at the possibility of providing ZAR2.5 billion for the fund and for the balance of ZAR7.5 billion to be raised from the private sector," he said.

The initiative is part of the government's policy to substantially boost local production. A strategy is also being implemented "to reduce regulatory impediments for small, medium and micro enterprises (SMMEs) and co-operatives and make it easier for entrepreneurs to start businesses." A red tape reduction committee has been set up by the presidency for this purpose. It will help rid the administration of "unnecessary bureaucracy".

South Africa, which will hold its 5th Investment Conference on April 13, wants to raise more than ZAR2 trillion in new investment by 2028.

According to the Organization for Economic Cooperation and Development (OECD), in 2022, 37% of micro, small, and medium enterprises (MSMEs) were considered formal. The organization estimates that of the 2.6 million MSMEs, 54% are microenterprises and 15% are located in rural areas. It also found out that the sector faces many challenges, including violations of company law and accounting standards, owners' declining borrowing capacity, the adoption of inappropriate products designed for different purposes, and increased risk of excessive personal debt.

In its National Development Plan (NDP), the South African government projects that by 2030, the sector will contribute 60-80% of GDP growth and employ 90% of the country's workforce. MSMEs are the main focus of poverty alleviation and much-needed job creation plans in the country. However, in 2020, they only had access to 25% of the total business loans provided by banks.  

Jean-Marc Gogbeu